Free Entry, Market Diffusion, and Social Inefficiency with Endogenously Growing Demand

Hiroshi Kitamura (), Akira Miyaoka () and Misato Sato ()
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Hiroshi Kitamura: Faculty of Economics, Kyoto Sangyo University
Akira Miyaoka: Graduate School of Economics, Osaka University
Misato Sato: Graduate School of Economics, GeorgeWashington University

No 11-04-Rev, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: This paper analyzes market diffusion in the presence of oligopolistic interaction among firms. Market demand is positively related to past market size because of consumer learning, networks, and bandwagon effects. Firms enter the market freely in each period with fixed costs and compete in quantities. We demonstrate that the nature of the ineffciency under free entry can change as the market grows, and more importantly, that S-shaped diffusion can be a signal that the number of firms under free entry is initially insuffcient, but eventually excessive.

Keywords: Free Entry; Market Diffusion; Intertemporal Externalities; Oligopolistic Interaction; S-shaped Diffusion. (search for similar items in EconPapers)
JEL-codes: D11 L11 L14 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2011-02, Revised 2012-11
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